Number one on the list of things to do for any entrepreneur, whether you’re opening a franchise or an independent start-up, should be to create a business plan. It’s a common misconception that because choosing to buy a franchise is considered a less risky route to business ownership, a franchise business plan is not required. However, this certainly isn’t the case. In reality, running a franchise doesn’t just happen overnight; you need a strong plan in place to guide you to success.
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Often, franchisees can get so caught up in the details of getting their business up and running that they forget to put the fundamentals in place first. Without this, how can you be sure that diving in headfirst is actually a good idea? Yes, you’re investing in a tried and tested business model. Yes, you’ll have access to comprehensive training and support from an experienced franchisor. But the responsibility still lies with you, the franchisee, to develop and grow your business within the territory that you’ve been awarded.
In this article, we’re going to discuss four reasons why you should take the time to create a business plan and then seven tips to remember when you come to writing one.
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4 reasons why writing a business plan is critical
1. It helps you get a clearer picture of what your ambitions are.
The discipline of writing a business plan makes you consider some key questions about the difficulties you may face when developing your franchise, as well as the hopes and dreams you have for the future. Thinking through these issues and expectations before you start your franchise is time well spent. If you encounter a challenge that you hadn’t considered once the franchise agreement has been signed, it may be too late to improve the situation.
2. A franchise business plan is a great way to concentrate all your focus on the key details of your franchise business.
This includes considering everything from the launch of your new venture to how it will operate and how it will continue to grow in the future. It also forces you to think about factors outside of your control, such as who your competitors are and how your business will deal with external challenges. It is this awareness that will better prepare you to run an effective and profitable franchise. This is a win-win for the franchisor and franchisee and, for this reason, your franchisor should provide you with all the information you need to develop a detailed franchise business plan.
3. The financial forecast makes up the main part of your business plan and helps you understand how your franchise will perform.
Your plan will contain financial projections that include profit and loss, balance sheets and cash flow. As you’re investing in a franchise that already has experience of trading, the financial element of the plan should be significantly easier to draft than it would be for an independent business start-up. From discussions with your franchisor and financials detailed in the Franchise Disclosure Document (FDD), you should have all the information you need to anticipate how your business will perform.
This is why banks view franchise businesses as less risky than their independent business counterparts, as there is a much greater awareness of when the venture will break even and start to make a profit.
However, even if funding isn’t needed to cover the franchise start-up cost, you may need finance to grow your business in the future. For this reason, it’s important to remember that your business plan should be a living document and updated regularly. If you ever need to obtain finance later, you’ll have all the necessary documentation ready.
4. A well-written plan is also a great way to attract talent.
Recruiting quality employees into your franchise increases the ability to maintain consistency of the products, service and brand, which is the key to a successful franchise.
Good prospective employees will want reassurance that they’re joining a secure, successful business, particularly if they aspire to become a franchisee themselves in the future. This may be the start of their franchising journey and they’ll want to choose the right first step.
Being able to share your business plan with candidates demonstrates that you understand your business. How the candidates react to the plan will also give you an idea of how interested they are in your business and how aligned their goals are with yours.
Now, if you’ve never written a business plan, we’ve got you covered. Carry on reading to see our seven tips for writing a solid business plan.
7 tips for writing a strong business plan
- Keep it short and succinct. Focus on what the reader actually needs to know, rather than waffling on. Make sure there are no spelling mistakes, so it looks professional and like you have spent time crafting it.
- Place more detailed information in the appendix. Such information might include detailed financial forecasts, market research that supports your assertations, technical specifications and the CVs of key personnel. The latter is crucial if you are looking to source outside funding.
- Stay professional. Place a cover on your plan, include a contents page and start with an executive summary that covers the key points, including the purpose of the plan. If it helps, explain what you are saying – you can include charts.
- Write for an outsider. Regardless of whether the plan is only going to be used externally or not, it’s best to write as if it were for an outsider. As we’ve mentioned, include company literature in the appendix and provide information about the past and present status of the franchise.
- Stick to reality. It’s good practice to base the business plan on reality in order to avoid counterproductivity. If you over-optimise your forecasts, this could result in increased overheads followed by a cash flow crisis and cost-cutting further down the line. Don’t exaggerate, even if you are trying to make the business look appealing to a third party. Potential business partners, employees and financers will see straight through your unrealistic plans. So, for this reason, it is better to address threats or weaknesses rather than ignore them.
- Review, review, review. When you read through your plan, think about the effect that it will have on the reader, whether that’s the bank manager or potential franchisee. Make sure there is evidence to support your claims rather than it being a list of falsifiable statements. Assess the risks; for example, what could go wrong and how you would overcome it. For instance, this could be losing one of your main customers or your principle supplier shutting down. Also, focus on your executive summary section because this is often what people make their provisional judgements on before deciding whether they want to carry on reading. Ask your friends or advisers to read the plan to check whether it is all understandable and convincing enough.
- Keep it up to date. A business plan isn’t the sort of document that you create once and that’s it; it is crucial to keep it up to date when your business grows and develops. Think of it as a living, breathing guide to your business that must adapt when circumstances change. Therefore, it could be wise to set a reminder to review your plan, so you don’t get caught up in other areas of the business and forget.
Excellent example of a franchise business plan
If you’ve never written a business plan before it can be quite daunting, but don’t let this be an excuse not to develop one for your new franchise. And remember, there is an array of templates, guides, software and books to support you through the business plan writing process. Help is there if you need it and, in the long run, you’ll be thankful that you took the time to understand your franchise before you even opened the doors for business.
Create a stellar business plan - you won’t regret it
A business plan is so much more than simply a vehicle to obtain funding for the franchise start-up cost. It’s a way to document your understanding of how your business will work. You can hold yourself accountable to the plan, more effectively examine your progress over time and use it as a means of recruiting quality employees by being able to share your vision for the future. For franchisors and franchisees alike, a well-written and thought through business plan is one of the most valuable documents in franchising. You can also read more about the importance of business plans.
Becky Martin, Point Franchise ©